Summary: This Appeal Tribunal overturned the decisions of two separate Employment Tribunals that former employees of a company that had been in CVA were entitled to claim arrears of pay and holiday pay from the NI Fund when the company subsequently went into liquidation. The appeals judge decided that the relevant date for claims was the date that the company’s CVA had been approved, not when later it had been placed into liquidation.

The Detail: Two separate Employment Tribunals had decided that former employees of companies that had been in CVA were entitled to claim arrears of pay and holiday pay from the NI Fund when the companies subsequently went into liquidation. In each case, all the twelve claimant employees had been unaware that the company had been placed into CVA – they had continued to be paid for some time until their employment ended when, or shortly before, the companies went into compulsory liquidation, leaving them with claims for arrears of wages and holiday pay. The NI Fund rejected their claims on the basis that the relevant date of these claims was after the commencement of the company’s insolvency, which it claimed was the date the CVA was approved, not the date of the liquidation commencement.

The Honourable Mr Justice Langstaff noted that the original judge, who had decided in favour of the employees, had interpreted the Employment Rights Act 1996 in light of what he had assumed was Parliament’s intention, suggesting that, because the company in CVA could – and did – continue to pay wages, at that time it had not become insolvent for the purposes of the ERA96, but that this point had occurred only when the company had been placed into liquidation. “That is to apply a definition of insolvency which is not to be found in the Act” (paragraph 22). “It is incoherent to suggest that a company which is insolvent by statute becomes insolvent again or in addition or in any additional way when wound up. The underlying state of insolvency has not changed” (paragraph 35).

The judge also found no contradiction in the EC Directive, which invites Member States to fix a relevant date for wages claims alternative to the commencement of insolvency proceedings, which, contrary to the original judge’s opinion, include CVAs, but that the UK had not taken up that invitation.

Langstaff J recognised the apparent unfairness of his conclusions in this case, particularly where the employees had no knowledge of the CVA, but he pointed out that this decision only affected debts that were payable before the start of the insolvency proceeding. “Other debts would be payable afterwards. A period of notice pay, for instance, to which each of these Claimants was entitled was not excluded from guarantee” (paragraph 56).

According to counsel on this case this was the first time that this question has been raised before any court, which personally I find most surprising: there must have been many cases where employees have been left with the full range of claims after a company in CVA has moved into liquidation. Perhaps this is the first time, however, that an employee has sought to dispute the RPO’s rejection.

English court’s rejection of Jersey court’s request for assistance in making administration order swiftly reversed

Summary: A secured creditor applied for an English administration order over a Jersey company. The application was supported by a letter from the Royal Court of Jersey asking that the English Court assist, pursuant to S426 of the IA86, by making the administration order. At first instance, the application was rejected on the basis that, as there was no insolvency proceeding either ongoing or intended in Jersey, the English Court could not “assist” the Jersey Court by making an English administration order. On appeal on 1 May, this decision was overturned, although the decision has yet to be published.

The Detail: Tambrook is a Jersey-registered and generally accepted to be Jersey-COMI company, although its main business activity is in England. None of the insolvency options available under Jersey statute were considered attractive by either the company director or the company’s secured creditor, but they saw significant advantages in an English administration.

As the company’s COMI is not England, the secured creditor sought to apply for an English administration via S426 of the IA86. S426(4) states that the English court “shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory”. The Royal Court of Jersey had written a letter to the English High Court requesting that it assist, pursuant to S426, by making an administration order.

In the first instance decision, Mr Justice Mann declined to make an administration order on the basis that the court was being asked to provide far more than simply assistance to the Jersey Royal Court: “this court cannot ‘assist’ another court which is not actually doing anything, or apparently intending to do anything, in its insolvency jurisdiction” (paragraph 18). Mann J came to this decision despite the applicant’s counsel referring to five Jersey cases in which he claimed administration orders had been granted in similar circumstances; the judge felt that they did not assist him in any way, as no reasoned decisions were available on those cases.

Summary: Although this was a fairly insignificant – and unsuccessful – application for permission to appeal against a transaction at an undervalue judgment, I thought it contained an unusual twist: the beneficiary of the transaction (Tanner) sought to prove that the bankrupt had not been insolvent at the time of the transaction because Tanner had been capable and willing to pay any sum to get the bankrupt out of a hole. The judge decided that this evidence probably would not have influenced the result of the case: the district judge had found that the debtor had been insolvent at the time based on the position of his own assets and liabilities.

The Detail: In an earlier judgment, the judge had found that the bankrupt had paid away substantial sums to Tanner by way of a transaction at an undervalue and thus ordered Tanner to repay the sums to the Trustee in Bankruptcy. Tanner sought permission to appeal the decision on a number of grounds. One of the grounds was that, at the time of the transaction, Tanner had had access to substantial funds and was willing to step in to provide to the bankrupt whatever funds were necessary to meet a contingent damages claim, which had been the key to the bankrupt’s insolvency.

Mr Justice Sales refused permission to appeal, deciding that this ground – and the others – did not meet the standard tests to allow fresh evidence to be admitted. In relation to this ground, Sales J decided that, even if admitted, it probably would not have an important influence on the result of the case: “It is quite clear, as the district judge found, that the bankrupt did not have sufficient assets of his own to meet his liability to pay damages. He was therefore insolvent. The fact that he had a generous friend in the form of Mr Tanner on hand who might have been prepared to help him (but had no legal obligation to do so) does not meet the point, as determined by the district judge, that the bankrupt was himself insolvent at the relevant time” (paragraph 15).

Mortgagee’s pre-action information must not be issued too early in the process

Summary: In this Scottish case, the Sheriff decided that the mortgagee had not complied with the pre-action requirements for enforcing its security because it had provided the debtor with the pre-action information at the same time as the “formal requisition” letter and before the expiry of the calling-up notice. Although different Acts resulted in different interpretations of the timing of the debtor “entering into default”, each interpretation led to a conclusion that the pre-action information had been provided too early in the process. Although the Scottish Government’s guidance suggests compliance at an earlier stage, it could not take precedence over primary legislation.

The Detail: The mortgagee, Firstplus, sought orders for the possession and sale of Pervez’s residential house. The case turned on whether Firstplus had complied with the pre-action requirements of the Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010 (“PAR Order 2010”).

Firstplus had communicated the debtor a number of times, culminating in the issuing of a “formal requisition” letter on 26 May 2011. This letter had included the required pre-action information. Later still, Firstplus served a calling-up notice on 19 July 2011. In view of the fact that the PAR Order 2010 states that the pre-action information “must be provided as soon as is reasonably practicable upon the debtor entering into default”, the key question was: when had the debtor defaulted? The question is complicated by the fact that “default” has different meanings under the different Acts to which the PAR Order 2010 refers: the Conveyancing and Feudal Reform (Scotland) Act 1970 and the Heritable Securities (Scotland) Act 1894.

The 1970 Act defines default, in part, as: “(a) where a calling-up notice in respect of the security has been served and has not been compiled with (Standard Condition 9(1)(a)); (b) where there has been a failure to comply with any other requirement arising out of the security (the court’s emphasis) (Standard Condition 9(1)(b));”. In this case, the Sheriff concluded that the calling-up notice had to be served and thus the earlier default notice was invalid and ineffective. On this basis, as the expiration of the calling-up notice had occurred after the pre-action information had been sent, the Sheriff decided that the PAR Order 2010 had not been complied with.

The Sheriff also reviewed the 1894 Act. He concluded that, although the 1894 Act does not expressly define “default”, “it is plain from the express terms of section 5 of the 1894 Act that the ‘default’ envisaged by that section can only occur ‘after formal requisition’ of the principal (my emphasis). Logically, therefore, the ‘default’ and the demand for payment cannot be simultaneous” (paragraph 59). It was Sheriff S Reid’s view that there must be a short time lapse between the issuing of the demand and the conclusion that the debtor had “made default” in terms of the 1894 Act and, although in this case the Sheriff need not have decided how long that time period should be, he expressed the view that “that time is likely to be very short – probably no more than one hour in commercial cases (Bank of Baroda v Panessar [1987] Ch. 335; Sheppard & Cooper Ltd v TSB Bank plc [1996] All ER 654), perhaps no more than a few clear banking days in non-commercial cases – being, in any event, no more than is necessary, in ordinary course, for the mechanics of a monetary transfer to be instructed and effected through recognised modern banking techniques” (paragraph 67). Therefore, because in this case the pre-action information had accompanied the “formal requisition”, the Sheriff decided that the PAR Order 2010 had not been complied with.

Firstplus had argued that it had been obliged to comply with the Scottish Government’s “Guidance on Pre-Action Requirements for Creditors”, which states that the pre-action information had to be provided as soon as the debtor enters into default “for example, by falling into arrears”, which would appear to suggest a far earlier point than that indicated by the 1970 and 1894 Acts. The Sheriff’s response was that “In my judgment, while creditors must ‘have regard to’ any Guidance issued by the Scottish Ministers in this respect, they are not obliged to follow it, still less is the Guidance a binding or definitive statement of the law. If that Guidance was seeking to define ‘default’ for the purposes of the 1970 Act as comprising merely a debtor ‘falling into arrears’, it would have been, in my judgment, an incorrect statement of the law. The Guidance cannot take precedence over, or contradict the proper meaning of, primary legislation” (paragraph 84).

This judgment has left me with a question: given the different timings of default under the two Acts, what would have happened had the pre-action information been sent after the “formal requisition” but before the calling-up notice?

If you, like me, were dissuaded from exploring the EC’s proposal on revising the European Regulation on Insolvency Proceedings, issued on 12 December 2012, by reason of its sheer length, you might find the Insolvency Service’s recent Call for Evidence useful in summarising its potential reach into the UK.

The Insolvency Service opened its Call for Evidence on 7 February 2013, with a closing date of 25 February. Whilst this may seem a tiny window in which to contemplate such a tome of proposals, I am certain that those for whom this holds most interest already will have spent quite some time over the last two months absorbing the proposals.

The fundamental question being asked by the Service is: should the Government opt in or out of the Regulation? Even with my zero personal experience and limited understanding of the work of cross-border insolvencies, it seems to me a no-brainer (well, the way the Service has argued it anyway). The Call for Evidence also asks questions on elements of the proposals likely to impact most on UK insolvency with a view to developing a negotiating mandate for the UK.

By opting in, the UK can engage in negotiations in order to finalise the proposals, but it will not be able to opt out subsequently and so the UK will be bound by the final Regulation, whatever its form.

If the UK does not opt in, it can only observe the process; it may decide to opt in later, but it will need the Member States’ consent. If the UK does not opt in to the final Regulation at all, it may mean that the UK will remain bound by the existing Regulation. This could cause much confusion when dealing with an insolvency that crosses the border of an opted-in Member State and, as the Impact Assessment puts it, “the UK is generally considered to be a good environment for cross-border insolvency resolution, and this scenario would undermine that position” (paragraph 30).

An alternative scenario if the UK does not opt in is that the European Council may decide that the existing Regulation in its current form could no longer apply to the UK. The Service describes the consequences as: disenfranchisement of UK stakeholders from EU cross-border insolvencies; UK insolvencies failing to have EU-wide recognition; and, whilst the Model Law might help, it might involve multiple court proceedings in the different relevant jurisdictions and thus increased costs and time to get results.

As alluded to above, the EC proposes to extend the scope of the Regulation wider than just “liquidation”, as presently (albeit that the Annex to the 2000 Regulation already includes Administration, VAs, Bankruptcy and Sequestration). It proposes to include proceedings “in which the assets and affairs of the debtor are subject to the control or supervision by a court. Such supervision would include proceedings where the court has no real involvement unless a creditor makes an application to review a decision” (paragraph 21) and “proceedings which include the adjustment of debt and the debtor remains in control of any assets” (paragraph 22). This is where the idea that Schemes of Arrangement will be wrapped up in the Regulation comes from.

Also as mentioned above, the Member State can decide whether to notify a particular national insolvency procedure to be included, but it is proposed there will be a new mechanism whereby the EC then will scrutinise the procedure to ensure that it fits the defined scope of the Regulation.

Jurisdiction for opening insolvency proceedings

The concept of COMI is proposed to be retained, consistent with the body of case law that has developed. The proposals seek to extend the concept to individuals.

The EC proposes to introduce a duty on the court or IP that opens the insolvency proceedings to examine the COMI of the debtor and specify the ground on which their jurisdiction is decided. Creditors from other Member States shall have the right to challenge the decision.

Secondary proceedings

It is proposed that the court receiving an application to open secondary proceedings must inform the office-holder of the main proceedings and allow him/her to be heard before the court makes its decision. The main proceedings’ office-holder will be entitled to ask for the application for secondary proceedings to be stayed, if they are not necessary to protect the interests of local creditors.

The proposal removes the restriction that secondary proceedings must be winding-up proceedings; it is proposed that they can be any proceedings available under the law of that Member State, including restructuring.

In addition, it is proposed that the courts in the main and secondary proceedings be obliged to communicate and cooperate with each other and that a similar obligation will be on the office-holder to communicate and cooperate with the court in the other Member State involved in the proceedings.

Publicity of proceedings and lodging of claims

“Each Member State will be required to maintain a public register(s) of insolvency decisions relating to companies and self-employed individuals, which must be internet based and free of charge. This requirement does not extend to insolvency proceedings concerning non-trading individuals or consumers” (paragraph 32). The register will contain basic information on the insolvency (albeit more than is currently on Companies House; for example, the information must include the court and reference number) plus a date for lodging claims. “Each register will be searchable via the European e-justice portal, with an interconnected search facility” (paragraph 33).

The EC proposes the provision of two standard forms for foreign creditors – a notice of insolvency and claim form – which will be made available (by whom? I think by the European e-justice portal) in all official EU languages. Foreign creditors must be given at least 45 days to lodge a claim, irrespective of any national laws specifying shorter timescales.

Groups of companies

The EC proposes to retain the Regulation’s entity-by-entity approach to the insolvencies of group companies, but seeks to improve coordination of efforts. Thus courts and office-holders involved in different proceedings on group companies will be obliged to communicate and cooperate.

It is proposed that the office-holder of an insolvent group company will be entitled to be heard in any opening proceedings on any other group company and will have the right to request a stay. An office-holder will also be able to participate in any insolvency proceedings on other group companies, for example in creditors’ meetings. As the EC puts it, “these procedural tools enable the liquidator [i.e. office-holder] which has the biggest interest in the successful restructuring of all companies concerned to officially submit his reorganisation plan in the proceedings concerning a group member, even if the liquidator in these proceedings is unwilling to cooperate or is opposed to the plan” (page 9 of the EC proposal).

The proposals are not intended to interfere with a strategy of pursuing a single set of insolvency proceedings over a highly integrated group of companies when it is determined that their COMI is in one jurisdiction.

Of course, this is all subject to negotiation and time… probably lots of time…

Although these two cases are much more for readers north of the Border, it seems to me that principles arising from the first case – that officers of the court have greater concerns than simply getting paid and that IPs and solicitors should be always alert to conflicts of interest – are relevant to many more of us.

Heavy Criticism for a Liquidator who Bypassed the Court to Obtain Remuneration
Re Quantum Distribution (UK) Limited (In Liquidation) [2012] CSOH 191 (18 December 2012)http://www.bailii.org/scot/cases/ScotCS/2012/2012CSOH191.htmlSummary: The judge in the Court of Session hoped that the publication of his opinion “will discourage a repetition of the unacceptable events” (paragraph 1). Lord Hodge’s criticisms were leveled primarily at a liquidator who had bypassed the court to obtain his remuneration from a newly-formed liquidation committee despite a very critical report from the court reporter. He also criticised the petitioning creditor’s solicitors, who also acted for the IP on some matters, for failing to make clear to the liquidator his need to take separate legal advice when they were in a position of conflict of interest.

The Detail: The court only learned of the events when the Auditor of Court raised his concerns with Lord Hodge. The Auditor had produced “a most unusual report” that concluded that, in light of the concerns identified by the court reporter, he was unable to report what would be suitable remuneration of the liquidator.

The court reporter’s concerns included questions regarding a settlement for the insolvent company’s ultimate parent (“QC”) to pay £50,000 each to the liquidation and to the petitioning creditor (“IEL”), although it was unclear what direct claim IEL had against QC. The reporter criticised the liquidator for charging time for brokering the deal, which he suggested was not an appropriate agreement, to the general body of creditors; for failing to disclose the settlement to creditors; and for adjudicating IEL’s claim without taking into account mitigating factors. He also suggested that the petitioning creditor’s solicitors appeared to have a clear conflict of interest in also acting as the liquidator’s adviser and that the petitioning creditor “had been allowed to exert undue influence over the liquidation” (paragraph 23).

However, it appears that, despite receiving the Auditor’s report declining to report what would be suitable remuneration, the liquidator did not make enquiries into what the court reporter’s concerns were, but instead he convened a meeting of creditors to form a liquidation committee and obtained approval for his fees from the committee, which the judge considered was “not acceptable behaviour” (paragraph 36). Lord Hodge expressed concern that the liquidator and the solicitors showed “a striking disregard of their obligations to the court. It appears that nobody applied his mind to why the Auditor said what he did or showed any curiosity as to what the court reporter had said in his report. The concern, as the emails show, was simply how to get the liquidator his remuneration” (paragraph 37). The judge’s opinion was that, as officers of the court, the liquidator and the solicitors’ staff should have brought the concerns of the court reporter to the attention of the court.

The liquidator was also criticised for failing to disclose the full terms of the settlement to the liquidation committee. In addition, it seems that the liquidator had failed to recognise that the compromise needed the court’s approval.

In reviewing the solicitors’ position, Lord Hodge commented that “solicitors who act in an insolvency for both the petitioning creditor and the insolvency practitioner need to be much more alert to the dangers of conflict of interest… It may be acceptable for a firm of solicitors so to act when the petitioning creditor’s claim is straightforward and not open to dispute. But where the claim is complex and is open to question, the potential for conflict of interest should bar the solicitor from so acting. In my opinion claims for damages for breach of contract often are of that nature, particularly where, as here, they entail a claim for loss in future years” (paragraph 40).

Proper Court Procedure Catches Out Administrator
Re Prestonpans (Trading) Limited (In Administration) [2012] CSOH 184 (4 December 2012)http://www.bailii.org/scot/cases/ScotCS/2012/2012CSOH184.htmlSummary: Is it correct to seek remedy under S242 (gratuitous alienations) by means of a petition? The judge decided that it was not, but he left open the question of whether the consequence should be that the joint administrator should begin the process again, given that no prejudice, inconvenience or unfairness would flow from continuing with the petition process.

The Detail: The joint administrators petitioned that an assignation granted by the company amounted to a gratuitous alienation under S242. Counsel for the respondents sought dismissal of the petition with the argument that the remedy is available only by way of summons, not by petition.

The case turned on the interpretation of rule of court 74.15, which states that applications under any provision of the Insolvency Act 1986 during an administration shall be by petition or by note in the process of the petition lodged for the administration order. The judge compared the wording of the rule of court prior to the 2002 Act, which listed the applications that should be made by motion in the process of the petition (because, of course, pre-2002, all administrations were instigated by petitions). Lord Malcolm then concluded that rule 74.15 “covers an application which relates to the supervision of, and is incidental to the administration, such as those specifically mentioned in the pre-existing rule; and does not apply to proceedings brought by administrators under sections 242 and 243 of the 1986 Act” (paragraph 10).

However, Lord Malcolm questioned whether, in this case, it followed that the proceedings should be dismissed as incompetent. He acknowledged that, “in the present circumstance, when no prejudice, inconvenience or unfairness would flow from persisting with the current petition, it would be unfortunate if the petitioners were required to begin again before the same court, albeit in a different form of process, with all the consequential extra expense and delay” (paragraph 16), however the rule of court remains. He invited the parties to address him further on this issue and concluded that this case supported the call for the abolition of the distinction between ordinary and petition procedure in the Court of Session.

• HM Treasury’s review of the Special Administration regime for investment banks – report to the Treasury by the end of January 2013 with a fuller report expected by end of June 2013: http://www.hm-treasury.gov.uk/press_124_12.htm

• The Financial Services Act comes into force on 1 April 2013… with what direct impact on IPs? I confess that it is not something that I know a lot about, but I do know that from it is created the Financial Conduct Authority, which (from 1 April 2014) will take on consumer credit regulation from the OFT so it may well affect IPs’ (and RPBs’ group) consumer credit licences: http://www.hm-treasury.gov.uk/press_126_12.htm

I’ll also take this opportunity to mention that I reproduce my blog posts into pdfs every couple of months or so – I have added these to a new page on this blog, but I email them direct to those who have asked. If you would like to be added to this emailing list, please drop me a line at insolvencyoracle@pobox.com. I have also started on twitter (@mbmoving); I am a complete novice, but I am hoping to use it to make immediate reference to news items on subjects such as those above (but I’ll continue to blog). Finally, I have given my blog a new look for the New Year – a photos from my trip to Patagonia in January 2012.

Have a lovely few days/weeks off, everyone, and I hope I get to meet up with some of you again sometime in the next year, when I emerge finally from all my unpleasant experiences of 2012.

Oh dear, the Official Receiver cannot seem to get it right. In the first case, his swift handover of an appointment left the Trustee with outstanding costs and no bankruptcy, but in the second case, his delay in getting to grips with a new case that clearly warranted an IP’s appointment jeopardised the continuance of an action commenced by the Provisional Liquidators. Is this “a reflection of the enormous pressure on resources, both financial and human, under which the OR is working” (TAG Capital Ventures v Potter, paragraph 31)?

The circumstances of the Appleyard case were unique (as demonstrated by the fact that it revealed a previously unreported lacuna in the 1986 Rules) and therefore I do not think that they serve as an argument for an OR to delay passing a case to an IP. However, I would suggest that the TAG Capital Ventures case demonstrates a more obvious downside of such a delay. To ensure the most beneficial outcome for creditors, I would have thought that a swift review of each case as soon as it comes into the OR’s hands – to identify the cases that are more appropriate for IPs and to get those shifted asap – surely is the best way to work, particularly with limited resources, isn’t it? Of course, it’s easy to see what needs to be done, but not so easy to do it when one is fire-fighting and this may be a one-off, but such ‘endemic, notorious, delays’ surely warrant attention.

Summary: An unfortunate train of events left the Trustee in Bankruptcy with outstanding costs after the debtor’s bankruptcy was overturned on appeal. The judge’s view was that the Trustee had been “unjustly left out in the cold”; he decided that the debtor’s property should stand charged with payment of the Trustee’s costs incurred up to the point when he learned that the bankruptcy order had been set aside; and he recommended amendment to the Insolvency Rules to deal with this lacuna.

The Detail: The debtor appealed the bankruptcy order on the grounds that the petitioning creditor had unreasonably refused to accept her offer to make payments by instalments. On 14 December 2011, the court provided that the bankruptcy order be set aside and that the hearing of the petition be adjourned for twelve months on the debtor’s undertaking to pay instalments to the petitioner. The order made no provision for the Trustee’s release from office or for payment of his expenses. In fact, it may have been the case that the judge did not even know that a Trustee had been appointed.

Appleyard had been appointed Trustee by the Secretary of State – the Official Receiver believing, correctly at the time, that the debtor had been refused permission to appeal. Appleyard had not been notified of the hearing – there is no provision in statute or the CPR requiring him to be notified – and he only learned of the setting aside of the bankruptcy order when the debtor telephoned him in January 2012. The Trustee had progressed the case in the usual manner, incurring costs of some £6,500.

Mr Justice Briggs felt that, as the Trustee was simply doing his job, there was no reason in principle why the Trustee’s expenses – up to the point when he learned of the successful appeal – should not be paid. In considering from whom those expenses ought to be paid, Briggs J drew on the judgment in Butterworth v Soutter, an annulment case: if the ground for annulment was where the order ought not to have been made (S282(1)(a)), then “there must be strong argument for saying that the petitioning creditor should pay the trustee’s costs” (paragraph 25), but if it were on the ground of payment/securing of the bankruptcy debts, then there is strong argument that the bankrupt should pay. This, and the decision in Thornhill v Atherton, led Briggs J to conclude that “Mr Appleyard’s right as trustee to recover his expenses, having acted entirely properly and innocently at least until January 2012, must prevail over Mrs Wewelwala’s right to enjoy to the full her estate upon its re-vesting in her as a result of the setting aside of the bankruptcy order. This is so even if, as between her and Davenham [the petitioner], it may be Davenham which was largely to blame for the circumstances leading to those expenses being innocently incurred… I do not think that it would be right to make an order against her personally, since this is more than Mr Appleyard would have been entitled to, had he remained her trustee. Nonetheless I should direct that her property… stand charged with payment of Mr Appleyard’s reasonable expenses down to January 2012, leaving him to obtain execution in that respect in such manner as he should think fit, in the absence of agreement with Mrs Wewelwala” (paragraphs 32 and 33). The judge left it open to the debtor whether she might challenge the reasonableness of the Trustee’s fees and/or to pursue a claim for compensation against the petitioner.

However, in relation to the Trustee’s costs incurred after he had learned of the setting aside, Briggs J “reached the opposite conclusion”. It seemed to him “that he [the Trustee] should have incurred no further expense without first applying to the court for directions” (paragraph 34).

Briggs J concluded: “it is most unfortunate that it was not appreciated by either of the parties to Mrs Wewelwala’s appeal last December that Mr Appleyard’s expenses need to be addressed. A trustee in bankruptcy’s expenses are as important a matter to be dealt with on an appeal against a bankruptcy order heard after his appointment, as they are in any application for rescission or for annulment. To the extent that the Insolvency Rules fail to make this clear, consideration should be given to their amendment, or to the issue of an appropriate practice direction. In any event, it is to be hoped that the reporting of this judgment may draw this aspect of bankruptcy practice and procedure to the attention of litigants and their professional advisors” (paragraph 37).

Summary: The fact that the Official Receiver had not been in a position to continue an action commenced by Provisional Liquidators and a four month delay were insufficient to conclude that continuance of the action would amount to an abuse of process of the court or to discharge a freezing order made at the outset of the action.

The Detail: Immediately following their appointment, the Provisional Liquidators applied for a freezing order against director, Potter, and commenced an action against him. A trial timetable was agreed, although neither party complied with disclosure.

Hot on the heels of the OR’s appointment as Liquidator on 25 June 2012, Potter’s solicitors asked the OR about his intentions with regard to the action. They asked again on 3 October and received the response: “Based on the information we have, and the fact that the provisional liquidators have not provided the records to date, the Official Receiver is not in a position to continue this action”.

Around the same time, the OR sent a report to creditors confirming that he did not intend calling a meeting of creditors. Shortly on receipt of this report, on 5 October, the petitioners’ solicitors contacted the OR’s office and put in train the process to have one of the former Provisional Liquidators appointed as Liquidator by the Secretary of State.

On 8 October, the date for filing the pre-trial questionnaire, Potter’s solicitors notified the OR’s office that failure to discontinue the proceedings would result in their client’s own application to have the proceedings struck out. No response was received and thus the application was made.

The IP was appointed Liquidator on 23 October and was now keen on continuing the action.

Mr Justice Warren commented that, without the OR’s statement on 4 October that he was “not in a position to continue this action”, Potter’s application would be “hopeless” (paragraph 37) and that the evidence (emails between the OR and the IP) suggested that up until the end of September “the OR had made no decision at all, a fact consistent with the suggestion made by Mr Wolman [for the claimant] that there are endemic, and he would say notorious, delays within the OR’s office” (paragraph 39). The judge suggested that, even if the conclusion were that on 4 October the Company did not intend to intend to pursue the action (a conclusion on which the judge cast significant doubt), it would be “an entirely disproportionate response” to strike out the action (paragraph 45).

In considering whether any delay in progressing the action supported the discharge of the freezing order, Warren J took no account of any delay prior to the appointment of the OR, as the Company was not in a position to act prior to this point. He also stated that “the OR must, on any footing, have been given a reasonable time after his appointment in which to consider his position in relation to the proceedings. I do not say that in all cases involving an insolvent company as claimant that a defendant simply has to accept the delays caused by the insolvency process. But in the present case, Mr Potter was the controlling mind and owner of the Company and ultimately responsible in practical terms for its demise… It would be wrong, I think, for Mr Potter to be able to rely on delay resulting from the orderly implementation of an insolvency process in order to obtain the discharge of the freezing order” (paragraph 48).

However, Warren J did observe that there seemed to be a delay over and above the “proper time for those matters” of some two months and that it may have been reasonable to expect the OR to have decided in July that, in view of the existing litigation, it would have been appropriate to hand the case to an IP, but nevertheless this small delay did not warrant the discharge of the freezing order.

The judgment includes details of exchanges between the OR’s office and the Provisional Liquidators, which demonstrate that there was no constructive dialogue between these parties throughout the OR’s term of office (which was not entirely due to delays by the OR) and leaves me wondering why the OR did not conclude swiftly on his appointment that an IP should be appointed (particularly given this case’s profile) or, failing this, why it took over three months for him to issue a Notice of No Meeting to creditors.

Recently, I gave a presentation that covered, amongst other things, IPs’ bonding duties. I thought it might be useful to repeat part of my presentation here. Below is a list of assertions made by IPs over my years with the IPA – with perhaps a dash of poetic licence here and there – together with how I would answer (and have answered) them based largely on the Insolvency Practitioners Regulations 2005 (“IP Regs”).

I cannot stress enough that you should not rely on the views expressed below. If you require clarification of your bonding duties under the IP Regs, you should seek legal advice and/or ask your authorising body.

I have thrown in a couple of controversial issues below, which I think demonstrate how following the strict wording of the IP Regs appears to result in an answer that seems insensible given the purpose of the specific penalty bond. For example, if the bond is intended to make good losses resulting from an office-holder’s fraud or dishonesty for the benefit of unsecured creditors, why should a Nominee’s bond cover the debtor’s voluntary contributions for, say, five years into the future? And if future contributions are appropriate for bonding in a VA (which I believe they are, but only when the Supervisor has control over them), why is the same principle not applied to Trust Deed appointments? I have to admit that, when I used to help IPs and staff with bonding queries whilst at the IPA, I often found myself sympathising with those who sought to apply common sense to issues but I was forced to say: “unfortunately the Regs are the Regs”. In many cases, I understand that bond insurers recognise the low (or possibly even zero) risk attached to some bond levels arising from a strict interpretation of the IP Regs and they are prepared to reduce bond premiums accordingly.

“I can ignore fixed charge assets, but I have to bond for floating charge assets”

IP Reg 4, Sch 2: ignore assets “charged to a third party”, so ignore fixed, floating, and any other charged assets, but…

IP Reg 4, Sch 2 continues: “to the extent of any amount which would be payable to that third party”, so bond needs to cover (i) fixed charge surplus, (ii) funds available to preferential creditors, and (iii) prescribed part (or floating charge surplus).

“I can bond as Nominee of a VA at the minimum level, because I am not in control of any assets at that stage”

Per IP Reg 5 Sch 2: where an IP acts as Nominee or Supervisor, bond for assets subject to the terms of the Arrangement. Can it be argued that, prior to approval, there is no “Arrangement”? Safer to bond.

“I don’t have to bond for the assets in an MVL because the assets are going to be distributed in specie”

IP Regs do not distinguish assets that are “handled” by IP; all must be bonded.

“For interlocking IVAs, I can arrange one bond to cover all assets”

Interlocking (incorrectly aka joint) IVAs – there are two IVA cases, so two bonds must be arranged. Where funds are pooled, technically both parties’ contributions are subject to the terms of each arrangement, so technically each bond should cover total pooled contributions (even though this means that each bond is covering the same assets).

“That asset is doubtful, so I can count it as valueless for bonding purposes”

IP Regs: “value as estimated by the IP”; reasonable worst case scenario is generally acceptable, but IP should still make honest judgment.

“I don’t need to bond for VAT refunds”

If it is a VAT refund due to the company at the date of appointment, it is an asset, thus should be bonded.

“I don’t need to bond for the funds expected to arise from that legal action until I see the money”

Again, what estimated value would the IP put on it? IP should make ongoing assessment, not wait until the action has completed nor wait until he has his hands on the cash.

“My agents are going to sell the assets and then deduct their fees direct, so I only need to bond for the anticipated net realisations”

IP Regs require gross estimated realisations to be bonded, which makes sense as the IP could collude with the agents to deduct excessive fees.

“The only realisation in this case is the director’s contribution towards the costs of the Liquidation, but I need to bond for that”

Whilst it may seem counter-intuitive, given that the IP Regs refer to bonding the insolvent’s assets (which would not include third party funds), Reg 1 of Schedule 2 of the IP Regs defines “insolvent’s assets” as “all assets comprised in the insolvent’s estate together with any monies provided by a third party for the payment of the insolvent’s debts or the costs and expenses of administering the insolvent’s estate”. Therefore, this is correct: the calculation for the bond level does need to include a director’s contribution to costs.

“Now that the company has moved from Administration to CVL, I can just roll over the bond”

Each case must be bonded, so technically it is a separate bond. Also, it is likely that the value of assets caught by the CVL will be much lower than those for the prior Administration (as most assets will have been realised and disbursed), so bond level likely will be much lower.

“Now that I have replaced my former colleague as Liquidator, I shall set my bond at the level it was for my predecessor”

Predecessor will have realised assets and distributed proceeds – these do not need to be bonded by successor, only balance in hand plus any future realisations.

“I have been appointed Administrator of a bank with customer account balances, but as they are monies held in trust I do not need to bond them”

IP Reg 4 Sch 2 does state that for bonding purposes IP ignores “assets held on trust by the insolvent to the extent that any beneficial interest in those assets does not belong to the insolvent”, so strictly speaking may be correct. However, this seems counter-intuitive, as the customer account balances are probably one of the principal matters that the IP has been appointed to deal with.

Recommend asking the bond insurer – if, due to theft of customer account monies, a bond claim were made, would it be covered by the bond?

“Although I have vacated office as Supervisor, I’m not releasing the bond until all the remaining dividend cheques have cleared”

Bond applies to those acting as an IP in relation to a person (S390(3)), i.e. in office. Once out of office, it is no longer necessary (or beneficial) to keep bond in place.

Summary: This has been the subject of some discussion on the LinkedIn Contentious Insolvency group. The main lessons I drew from this case are that, not only should IPs take care to avoid personal liability when signing contracts/agreements as agent (SoBO?), but also to understand who – himself or the insolvent entity – is made party to legal proceedings. In this case, it seems that the IP did not think through the consequences of an action brought against him; he seemed to assume (or at least he attempted to rely on the assumption) that the successful litigant would rank pari passu with other administration expense creditors. As the IP had not appealed the order, all that was left to the judge – who was asked by the litigant for directions that it be paid in priority to the other expense creditors – was the question: was the order against the IP personally or the companies in Administration? As the companies had not been made party to the proceedings, the court on appeal concluded that it could not be the companies and thus the IP was held personally liable.

The Detail: Mr Morris, Administrator of two companies, entered into two CFAs with Wright Hassall LLP. The judgment of Lord Justice Treacy notes: “Although the heading to the agreements made plain that the two companies were in administration, and the Appellant must have understood that Mr Morris was the Administrator, when he signed the agreements he did so without any qualification as to his personal position or reservation as to his personal liability. In due course Judge Brown QC was to find that Mr Morris signed the documents without reading them” (paragraph 5). Here endeth the first lesson.

Later, the solicitors sought payment under the CFAs. The court found in favour of Wright Hassall LLP, but, as described above, when the solicitors pursued payment, Morris sought to treat them as an administration expense creditor who would need to wait along with all other expense creditors. The solicitors sought directions that they be paid in priority to the other expense creditors, but, although the issue of personal liability had not been raised before, Judge Cooke recognised that this issue was key. He decided that Morris was not personally liable, putting some weight behind the naming of the defendant as “Morris as Administrator of… Limited” and suggested that this acknowledged that Morris was acting as agent, rather than in a personal capacity. Wright Hassall LLP appealed this decision.

The problem identified by one of the appeals judges, Treacy LJ, was that the only defendant was Morris; at no stage had the companies been joined as parties to the litigation. Treacy LJ noted that there was no authority for asserting that, by describing the defendant as “Morris as Administrator of… Limited”, this recognises that he is being sued as agent. He also noted that the only way the companies could have been made party to the action was with the consent of the Administrator or by order of court, but neither of these steps had been taken. Finally, he noted that, had the companies truly been the defendants, they would have been described as “XYZ Limited (In Administration)”. As Judge Brown QC could only make an order against a party to the action before him, it followed that the order was against Mr Morris personally.

LPA Receivership results in change of client, thus no TUPE transfer of service provision

Summary: I have seen some commentary on the Hunter v McCarrick Employment Appeal Tribunal ([2011] UKEAT 0167/10/DA) and, as this recent appeal was dismissed, there has been no change, but I thought it was worth a quick mention.

We are all used to the principle that, if a business switches its service provider, the people employed by the original service provider are protected under TUPE. In this case, the appointment of LPA Receivers led to employees switching employer although they provided the same services to the same properties. However, the switch of employers was not considered to be a transfer of service provision, because the “client” had changed from the borrower to the mortgagee/receivership.

The Detail: McCarrick was employed by WCP Management Limited (“WCP”), which provided management services on a group of properties. The mortgagee appointed LPA Receivers, who instructed a new property management company, King Sturge, and thus WCP stopped providing the service. McCarrick then became employed personally by Hunter, who had an interest in seeing the swift end of the receivership and who made McCarrick available to assist King Sturge in the property management at no cost to the receivership. McCarrick apparently provided the same property management services as he had before, but he was now paid by Hunter.

Subsequently, McCarrick was dismissed and he sought to claim that the dismissal was unfair. In order to do so, he needed to prove continuity of employment between WCP and Hunter. The Employment Appeal Tribunal decided – and this appeals court confirmed – that there was no transfer of service provision between WCP and Hunter. It was stated that Regulation 3(1)(b) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 envisages that the client will remain the same throughout the transfer of service provision and “it would be quite illegitimate to rewrite the statutory provisions in the very broad way suggested by the appellant” (paragraph 37), i.e. to enable the Regulations to achieve the purpose of protecting employees in this situation when there is a transfer of service provision. Therefore, as the client switched from the borrower to the mortgagee “and/or the receivership” (paragraph 27), Regulation 3(1)(b) regarding the transfer of service provision does not apply.

Out-bid Newco avoids claims from purchaser who found the cupboard bare

Summary: The post-Administration purchasers of a business alleged that they found “the cupboard was bare”, but claims against “Newco” and others for migrating the business prior to insolvency failed.

What I found particularly interesting in this case was the apparent acknowledgement of the judge that the director could take certain steps in anticipation of a pre-pack sale to Newco.

The Detail: A subsidiary of the first claimant bought the business, name and assets of Lothbury Financial Limited (“LF”) from its Administrators four days after the company was placed into Administration on application of the claimants. The claimants alleged that a former director, consultants, and employee of LF conspired to transfer the business to Lothbury Financial Services Limited (“LFS”) and thus committed serious acts of misfeasance.

Mrs Justice Proudman concluded that the claims failed. She was satisfied that the evidence demonstrated that: LFS operated as a bona fide separate business prior to the Administration of LF; LF’s clients were not misled, but chose to follow the consultants, who had no restrictive covenants, to LFS of their own accord (the business was PR); and LFS was entitled to continue to use the name after the goodwill of LF was sold to the claimant.

As far back as summer 2009 (LF was placed into Administration on 29 March 2010), the director was taking advice from an IP regarding a pre-pack Administration, although he was also attempting to re-negotiate payment terms with the claimant in order to rescue LF. The claimants alleged that LFS was set up and structured as part of the director’s exit strategy, that LFS was to be the destination for LF’s business. “The claimants argue that the allegation of a pre-pack administration is self-serving as depriving LF of its business served to ensure that the price to be paid would be minimised and rival bidders would be discouraged. However, preparing to succeed to an original business in such circumstances is in my judgment different from preparing to compete with it. It is the essence of a pre-pack management buy-out that information has to be derived from the failing company in order to structure such a buy-out” (paragraph 38).

So how much activity in preparation of a pre-pack is acceptable and over what kind of period? It is noteworthy that in this case, although there was evidence of some confusion of company names on a client’s contract and an employee was described as having “overreached herself” (paragraph 28) in explaining to the London Stock Exchange’s Regulated News Section that LF had simply changed its name to LFS and moved offices, the judge found no case against the director for breach of fiduciary duty and noted that LF suffered no loss by the actions.

When will a court release a bankrupt from a family proceedings debt under S281(5)?

Summary: A discharged bankrupt was refused release from a bankruptcy debt arising from a family proceedings order.

Although this is not a particularly surprising outcome, the judgment provides a useful summary of the factors the court considers when deciding whether to override the default position of S281(5) of the Insolvency Act 1986.

The Detail: Mr McRoberts’ bankruptcy started in September 2006. Mrs McRoberts submitted a proof of debt for c.£245,000 being the amount owed under an order in their family proceedings in 2003 in resolution of their financial claims ancillary to their divorce. Mr McRoberts was discharged from bankruptcy in September 2007 and the bankruptcy was concluded with no distribution to creditors.

S281(5) provides that discharge from bankruptcy does not release the debtor from such a debt, but the court has jurisdiction to release it and the court in Hayes v Hayes held that the court’s discretion in this matter is unfettered and the debt can be released after the debtor’s discharge. The Hon. Mr Justice Hildyard considered the factors described in Hayes and continued: “As it seems to me, the ultimate balance to be struck is between (a) the prejudice to the respondent/obligee in releasing the obligation if otherwise there would or might be some prospect of any part of the obligation being met and (b) the potential prejudice to the applicant’s realistic chance of building a viable financial future for himself and those dependent upon him if the obligation remains in place. In striking that balance I consider that the burden is on the applicant; unless satisfied that the balance of prejudice favours its release the obligation should remain in place” (paragraphs 24 and 25). He also considered that a review of the merits or overall fairness of the underlying obligation did not come into it, but that, if any modification of the order were sought, this was a matter for the matrimonial courts.

In this case, the judge’s view was that the balance remained in favour of keeping the obligation in place – the debtor had not provided evidence that any future enterprise or activity would be blighted by the continued obligation – and thus he declined to grant release.

It seems to me that, at present, one strength of the Trust Deed is its flexibility: with the assistance of an IP, a debtor can consider what he/she can afford and what he/she is prepared to put forward to creditors, effectively in exchange for avoiding bankruptcy. I appreciate that, to some extent, Trust Deeds – and creditors’/creditor agents’ reviewing of them – have become standardised so that in effect we now have a “consumer” Trust Deed, which anticipates a pretty standard level of contribution over a standard three-year period, delivering a fairly standard dividend to creditors. However, I think it should be remembered that this is not what the legislation (currently) provides and the beauty of it is that debtors can formulate a Trust Deed to fit their particular circumstances. Not all debtors fit the “standard consumer” model.

However, the SG is now looking to “standardise the period over which an individual makes the assessed contribution in bankruptcy and protected trust deeds, to be equivalent to a minimum of 48 monthly payments”. The response also states: “There is a strong case for setting a minimum dividend at which Trust Deeds are eligible to become protected. We recognise that there are differing views among interested parties and believe that there is a legitimate debate to be had on the level of any minimum dividend. Our view is that the level would be most appropriately set between/around 30-50p in the £. We will engage constructively with interested groups over the coming weeks to agree on an appropriate level.”

Why take a flexible tool and impose such restrictions on its use? And how do these conclusions stack up with the consultation responses?

One of the conclusions described in the report on the consultation responses was: “There should not be a fixed term for completion of a protected trust deed” (page 5) – 71 respondees were opposed to a fixed term and only 29 were in favour. Perhaps the argument is that, in setting a minimum of 48 monthly payments, the SG is not setting a fixed term!

What exactly is the “strong case” for setting a minimum dividend? The report on consultation responses observed that “in recent years some creditors have taken a greater interest in PTDs and have actively rejected the protection of trust deeds which propose a dividend of less than 10p in the £” (page 31) – so that means that the Trust Deed framework is working, doesn’t it? In introducing a minimum dividend at which Trust Deeds become eligible for protection, isn’t the SG taking the power away from creditors to decide what they are prepared to accept? And how does evidence of creditors rejecting Trust Deeds anticipating 10p in the £ lead to a conclusion that the minimum dividend should be 30-50p?

In my mind, it is simply not logical to put a minimum dividend on a Trust Deed. The dividend level is simply a measure of net assets/income over total liabilities; it is not a measure of what a debtor can afford to pay and neither is it a reflection of how appropriate the proposal is. Take two people: one can raise net assets/income of £12,000 and has liabilities totalling £40,000; the other can raise net assets/income of £13,000 and has liabilities totalling £45,000. Where is the logic in allowing the first person to acquire a Protected Trust Deed, as the dividend will be 30p in the £, but denying the second, as the dividend would be 29p in the £?

What is wrong with a Trust Deed that offers a return of 29p in the £, if the likely outcome of bankruptcy is no improvement? I remember an IP telling me that she had arranged an Individual Voluntary Arrangement for a 1990s Lloyd’s Names individual, which proposed a return of only a fraction of 1p in the £, but it still represented the best deal for creditors and it involved some reasonable assets/income. Surely that is the key of voluntary processes, such as IVAs and Trust Deeds – they can offer a better deal for both debtor and creditors, when compared with the alternative of bankruptcy. They should not be restricted by the need to meet a minimum dividend, which fails to recognise the individual circumstances of the debtor.

So will the introduction of a minimum dividend lead to many more people choosing bankruptcy? I wonder. It seems to me that many people will do almost anything to avoid bankruptcy, even when from a purely financial perspective it is obviously the best option for them. If they are prohibited from seeking a PTD, I wonder whether they would rather take the option of a long-term DAS or informal debt management plan or simply struggle on in no man’s land. In introducing a minimum dividend for PTDs, it seems to me that the misery for thousands will be extended for many years.

Protected Trust Deed “Guidance”

The SG appears to be seeking to introduce a further fundamental change to the PTD process, but via “Guidance”: “New Protected Trust Deed Guidance will also be introduced, to encourage best practice to be adopted in all cases. The Guidance will include a revised structure for trustee fees consisting of an up-front fee for setting up the trust deed and a percentage fee based on the amount of funds ingathered from the debtor’s estate.”

I believe that it is correct to avoid prescribing the basis on which Trustees should be paid via legislation, but I do wonder how the SG/AiB expects its Guidance will persuade IPs to re-structure fees to be on this fixed sum and percentage basis. What pressure will it bring to bear on IPs who do not follow this approach that it calls “best practice”? Will the AiB, as is stated in the paragraph preceding this, “take a more proactive role, where necessary compelling trustees to act by using their powers of direction”? But the Guidance is just guidance, isn’t it?

Creditor applications for Bankruptcy

The SG response states that the Bankruptcy Bill will look to develop “the bankruptcy process to facilitate the ability for non-contentious creditor applications to come to AiB rather than a petition to the court for an individual’s bankruptcy”. This plan appears most odd to me, particularly in view of the report on the consultation responses.

In the report’s summary, one of the conclusions of the consultation responses was: “creditors should continue to petition the court for an individual’s bankruptcy” (page 6), which appears unequivocal to me. The response statistics also bear out this conclusion – there were more responses opposed to the proposal that creditor applications be submitted to the AiB than there were responses in favour and this remained the case even when the proposal was restricted to “non-contentious” creditor applications. So what is the argument for proceeding with this plan?

Fortunately, Westminster has decided not to take forward the idea that creditor petitions for bankruptcy and company windings-up in England might avoid the courts. It took that decision having consulted on the proposal and having received the clear message back that the majority were opposed. It is strange that Holyrood has decided to take the opposite view on having received a similar reaction to a similar consultation question.

Of course, I have only commented on the plans that appear to me to be most significantly flawed – there are many more planned changes, including some that make perfect sense and are welcome. However, some leave me asking the question: why? What ills are these changes seeking to remedy? Are they going to be an improvement over what we already have, which seems to me to work reasonably well on the whole? And what kind of world will we live in when it all becomes a reality?

Colliers International – can the court grant retrospective permission for a creditor to commence legal proceedings after a court-based insolvency (i.e. Bankruptcy, Compulsory Winding-up, or Administration) has begun?

TAG Capital Venture – should a Provisional Liquidator’s S235 interview be excluded from evidence in relation to an opposed petition on a disputed debt? Also, in the case of a disputed petition debt, can the same solicitors act for both the petitioners and the Provisional Liquidators?

Decision: Richards J makes it clear that this judgment is intended to resolve uncertainties suggested by the history of previous judgments and to establish the principle that retrospective permission may be given for the commencement of proceedings under S130(2) or S285(3) of the Insolvency Act 1986 or under Paragraph 43(6) of Schedule B1 (paragraphs 35 and 36).

Background: The uncertainties are explained in Sealy & Milman’s note to S285(3) (page 340 in 15th edition). S285(3) provides that, after the making of a bankruptcy order, creditors with provable debts may not commence any action except with leave of court (and the Act provides generally similar provisions for compulsory winding-ups and Administrations). Sealy & Milman’s note describes the case precedent: in Saunders (1997), the court granted retrospective leave, but in Taylor (2007), it was refused; then in Bank of Scotland Plc v Breytenbach (2012), the court followed the earlier decision in Saunders.

In this current case, the applicants notified the Administrators of potential claims two months after Colliers was placed into Administration. The claims relate to allegations of negligence in providing valuations on Southern Cross group care homes provided in 2006 in view of valuations obtained in 2011 indicating much reduced values. The applicants issued claim forms in September 2012. Assuming the court had jurisdiction to grant retrospective permission, Richards J stated that it was a clear case for permission to be granted (paragraph 8).

After considering the case precedent, Richards J reflected on the purpose of the statutory provisions requiring leave of court to be obtained to commence actions. He noted that there was no corresponding provision for CVLs and thus, to quote “Black LJ in Boyd v Lee Guinness Limited, ‘this section is one of a series of provisions designed to ensure that when a winding-up order has been made by the court the whole of the task of supervising the collection and distribution of the company’s assets should be committed to the winding-up court and, accordingly, that all proceedings having any bearing upon the winding-up of the company should remain under the supervision and control of that court.’ Given that purpose, it is hard to see why the court should not be permitted to grant retrospective permission if in the circumstances it is appropriate to do so” (paragraph 32).

This judgment appears to have been released last week, but it relates to a February 2012 case.

Decision: Richards J addressed two issues: (1) he rejected the director’s request that a transcript of his interview with Provisional Liquidators under S235 should be excluded from evidence on a winding-up petition; and (2) he agreed with the director that, in the circumstances of this case, the solicitors for the petitioners should not also be acting for the Provisional Liquidators.

Background: The sole director opposes the petition and disputes the petition debt, but Provisional Liquidators have been appointed. The director argued that the purpose of a S235 interview conducted by a Provisional Liquidator is to enable him to undertake his duties, which are essentially to establish underlying facts about the nature, business, liabilities and assets of the company and to ensure the preservation of its assets. The judge agreed that these were amongst the Provisional Liquidator’s duties, but an investigation into the petition debt and any contracts between the parties would be wrapped up in this purpose. Richards J stated: “If in the course of his investigations a provisional liquidator discovers or obtains evidence which is relevant to the issues to be determined in the petition, it would in my judgment be perverse if he could not place that evidence before the court whether it assisted the petitioner or those opposing the petition” (paragraph 7).

On the conflict issue, Richards J stated: “in circumstances where the petition debt is the subject of actual dispute leading to a one day hearing to determine whether the petition is well founded, there is a conflict between the positions of the provisional liquidators and the petitioners” (paragraph 12), but he continued: “in saying this, I am not suggesting that it is never appropriate for the same firm of solicitors to act both for the petitioning creditor and for provisional liquidators, or for the same firm to act for creditors and for a liquidator appointed after a company has gone into winding up. It will all depend upon the circumstances. If there is no dispute about the debt owed to the petitioning creditor then in the absence of other circumstances, there is no conflict between the petitioner’s position and the position of the provisional liquidators” (paragraph 16).

The judge also observed that, as the director knew that the same solicitors were acting for both the petitioners and the Provisional Liquidators at the time of the S235 interview, he can have no complaint that information from that interview has already passed between the parties. He also rejected the director’s argument that the solicitors should cease to act for the petitioners, but saw that the more appropriate course of action was for the Provisional Liquidators to instruct new solicitors.

On 24 October 2012, the Supreme Court considered whether, and if so, in what circumstances, an order or judgment of a foreign court in proceedings to set aside prior transactions, will be recognised and enforced in England and Wales and whether the UNCITRAL Model Law has any bearing in this regard.

On a 4:1 majority, the Supreme Court allowed the Rubin appeal “holding that there should not be special rules for avoidance judgements”.

The background of the appeal is that the US Federal Bankruptcy Court for the Southern District of New York had decided, in default of appearance, in respect of fraudulent conveyances and transfer and the judgment was enforced in England at common law. As the party against whom the judgment was made was neither present in the foreign country nor had it submitted to the jurisdiction, the question was “whether the Court should adopt separate rules for judgments in personam in avoidance proceedings where the judgments were central to the purposes of the insolvency proceedings or part of the mechanism of collective execution”.

The Court did not agree that there should be a more liberal rule for judgments given in foreign insolvency proceedings for the avoidance of transactions. “Such a change would not be an incremental development of existing principles, but a radical departure from substantially settled law, and more suitable for legislature than judicial innovation.” Lord Collins, with the agreement of two others, “held that the earlier Privy Council decision in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2007] 1 AC 508 was wrongly decided in that there was no basis for the recognition of the US Bankruptcy order in the Isle of Mann in that case”.

The Court also saw nothing in the Cross Border Insolvency Regulations 2006 or UNCITRAL that applied to the recognition or enforcement of foreign judgments against third parties.

In addition, the Press Summary covers the Supreme Court’s consideration of the appeal of New Cap Reinsurance Corporation (In Liquidation) & Anor v A E Grant & Ors as Members of Lloyd’s Syndicate 991 for the 1997 Year of Account and Anor [2012] UKSC 46. This is another foreign jurisdiction case regarding a voidable transaction (this time based on a judgment in Australia), but the circumstances were quite different. The Court decided to dismiss the appeal, as the Syndicate had proven in the Australian insolvency of New Cap and thus had submitted to the jurisdiction of Australia. In the circumstances, the Court decided that the Foreign Judgments (Reciprocal Enforcement) Act 1933 applied.

My thanks go to Maurice Moses, Ernst & Young LLP, for forewarning me of this matter, as newsflashed by Allen & Overy on 23 October.